Central Bank of Ecuador et Al v Conticorp Sa et Al
| Jurisdiction | UK Non-devolved |
| Judge | Lord Mance |
| Judgment Date | 23 March 2015 |
| Court | Privy Council |
| Docket Number | Privy Council Appeal No. 72 of 2013 |
| Date | 23 March 2015 |
Privy Council
Lord Mance; Lord Clarke; Lord Sumption; Lord Carnwath; Lord Toulson
Privy Council Appeal No. 72 of 2013
Law - Whether the respondents were guilty of a lack of probity — Circumstances in which an appeal court will interfere with concurrent findings of pure fact and primary fact — A decision by a trial judge exonerating a party of a want of probity should only be displaced on the clearest grounds — Dishonest assistance — Whether the director of the second appellant acted in breach of fiduciary duty — Whether the respondents dishonestly assisted the director of the second appellant in breaching his fiduciary duty — Whether there was a sound basis for the general finding of honesty made by the courts below.
This case concerns three transactions (“the GDR transactions”) by which, in effect, the Second appellant (“IAMF”) transferred to the First respondent (“Conticorp”) a portfolio of loans and interests in various companies having a face value in excess of US$190 million in return for Global Depository Receipts (“GDRs”) and shares in Grupo Financial Conticorp (“GFC”) which ultimately proved to be worthless.
IAMF was a mutual fund, the beneficial interests in which were subscribed by BCO Curacao, using monies raised from Ecuadorian depositors. BCO Curacao was owned by Banco Continental SA, which was the principal subsidiary of GFC, which was owned by Conticorp. All these companies were ultimately under the control of the Ortega Trujillo family, which includes the Second, Third and Fourth respondents. IAMF's sole director and investment adviser was Mr. Taylor, but he acted on the instructions of the respondents in entering into the GDR transactions and did not exercise independent judgment about what was in the interests of IAMF.
The GDR transactions took place in December 1995, January 1996 and March 1996, during which time Banco Continental and GFC were in serious financial difficulty and Banco Continental was taking substantial loans from the First appellant, the Central Bank of Ecuador (“Central Bank”).
IAMF claims damages from the respondents for dishonestly procuring or assisting Mr. Taylor to commit what IAMF alleges were breaches of fiduciary duty toward IAMF. The courts below accepted the respondent's submissions as to the probity of the GDR transactions and found that they were entered into as part of a debt to equity plan (or Structural Reorganisation Plan) which had been agreed, or were at least reasonably believed to have been agreed, by the respondents with Dr. Intriago, the Superintendent of Banks, in the context of obtaining financial support from the Central Bank of Ecuador.
The Judicial Committee of the Privy Council humbly advises Her Majesty that the IAMF's appeal be allowed. Lord Mance gives the judgment of the Board, holding that [176]:
(1) The respondents are jointly and severally liable for dishonestly procuring and assisting Mr. Taylor's entering into the three GDR transactions in breach of his fiduciary duty to IAMF;
Mr. Taylor's breaches of fiduciary duty
Mr. Taylor breached his fiduciary duty by entering into each of the three transactions on the instructions of the respondents, without exercising any independent judgment as to what was in the best interests of IAMF [45 49] and [119].
In determining whether the respondents dishonestly procured or assisted Mr. Taylor to commit such breaches of fiduciary duty, it is necessary to ask whether they believed or could honestly have had believed that the GDRs or GFC shares received from Conticorp were worth at least what the respondents arranged for IAMF to pay for them [51–55]. The courts below erred in failing to address that critical question [56]. They also erred in other respects [46–50 and 57–63], which included treating all three transactions as involving a debt for equity swap [61–62] and failing to address the reasons relied on as showing why the transactions could not honestly have been believed to have been in IAMF's interests [63]. The present proceedings fall within the limited category of cases in which it is open for the Board to review concurrent findings and conclusions of the courts below, and, after doing so, to conclude in this case that the decisions below should be reversed [3, 165 and 176]. More particularly:
(1) The courts below failed to identify the distinction between a conventional debt to equity plan, under which IAMF's transfers of its loan portfolio and other assets would have given it equity in the company to which such transfers were made, and the GDR transactions [121].
The GDRs were either not re-saleable or rapidly ceased to be re-saleable, and were subsequently cancelled. The events are properly regarded as the consequence of the dishonest assistance, since they were precisely the risks to which IAMF was wrongly exposed by the respondents' actions in procuring or assisting the entry into of the three transactions [172].
There is in the circumstances no requirement that IAMF should be able to return the GDRs or GFC shares received, in order to be able to recover any damages [174]. IAMF is entitled to recover from the respondents the face value of the loans and shares transferred or surrendered to Conticorp which, subject to correction by the parties, the Board calculates to be US$190.7 million [175].
References in square brackets are to paragraphs in the judgment. This summary is provided to assist in understanding the Committee's decision. It does not form part of the reasons for the decision. The full opinion of the Committee is the only authoritative document. Judgments are public documents and are available at: www.jcpc.uk/decided-cases/index.html
Richard Salter QC Matthew Parker (Instructed by K&L Gates LLP)
Julian Malins QC Ruth Jordan (Instructed by Sheridans)
The central issue on this appeal is the probity of three transactions entered into by the appellant, Interamerican Asset Management Fund Limited (“IAMF”) incorporated and based in The Bahamas, in December 1995 and January and March 1996 with the first respondent, Conticorp SA (“Conticorp”), an Ecuadorian company. Conticorp was the owner of Grupo Financiero Conticorp SA (“GFC”), whose principal subsidiary was Banco Continental SA (“Banco Continental”), which in turn owned Banco Continental Overseas NV (“BCO Curacao”). GFC and Banco Continental were both also Ecuadorian companies, while BCO Curacao was a Netherlands Antilles company. The Board will call GFC and its subsidiaries “the GFC group”. BCO Curacao had invested its assets heavily in equity participations in IAMF. Conticorp had other subsidiaries or related companies, not part of the GFC group, and the Board will refer to these as “Conticorp-related companies”. The personal respondents were three of Conticorp's principal shareholding owners and officers. IAMF's case is that they and through them Conticorp controlled all IAMF's decisions and affairs, and that, although IAMF was presented to the world as an independent investment management fund, Mr. Michael Taylor, its sole director and nominated investment adviser, was never more than an instrument executing the respondents' instructions.
IAMF's assets originated from funds raised by BCO Curacao from Ecuadorian depositors. Prior to the three transactions, the assets included portfolios of loans granted to Conticorp and Conticorp-related companies, cash and shareholdings, to a total face value of about USD 192m. By the three transactions IAMF transferred or surrendered such cash, portfolios and shareholdings to Conticorp. IAMF's case is that Conticorp gave IAMF in exchange under the first two transactions global depository receipts (“GDRs”) representing shares in GFC and under the third simply shares in GFC, which were not or could not honestly have been thought to have value, or at least value in any way commensurate with that of the cash, loans and shares which IAMF was surrendering and the risks it was incurring by accepting the GDRs and shares in place of its previous assets.
The three transactions took place during a period of ever increasing financial difficulties affecting both Banco Continental and BCO Curacao. Very heavy withdrawals in November 1995 were followed by public rumours of financial collapse in early December 1995. To meet the run on both banks, they were forced increasingly to rely on borrowings at stringent interest rates (c 50% per annum) from the Central Bank of Ecuador. Eventually, in March 1996, the Central Bank of Ecuador was obliged to rescue them by an extensive subordinated loan. This loan was accompanied by a transfer of control over GFC under a trust agreement, it was supplemented in 1996 by further lending and it was ultimately converted, following a default in repayment, into new equity, with all old equity being cancelled. In these circumstances, IAMF claims the whole value of the cash, loans and shares which it transferred to Conticorp, primarily on the basis that the respondents were, by bringing about the three transactions, all involved in dishonestly assisting breaches of trust by Mr. Taylor in agreeing, on their instructions, the documentation by which the three transactions were implemented. The trial judge, Adderley, J., and the Court of Appeal rejected IAMF's challenge to the probity of the transactions on a variety of grounds. For the reasons given in this judgment, the Board has reached a contrary conclusion and will humbly advise Her Majesty as summarised in para 176 below.
In the light of the rejection of IAMF's case in both courts below, IAMF faces a heavy onus in seeking to persuade the Board to reach a conclusion that the respondents...
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